Mastering Retention Metrics: How to Use Benchmarking for Sustainable Growth in SaaS and E-Commerce

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Read time: 5 minutes.

Welcome to the 75th edition of The Growth Elements Newsletter. Every Monday and sometimes on Thursday, I write an essay on growth metrics & experiments and business case studies.

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Once a user or customer is acquired, retaining and increasing their LTV over time is crucial.

Effective retention strategies not only sustain growth but also boost profitability, making it critical to monitor key metrics regularly.

Benchmarking Against Industry Standards

• Benchmarking retention and performance metrics against industry standards and peers is crucial for assessing your business's performance.

• Tools like Varos offer valuable benchmarking comparisons, allowing businesses to compare performance against companies in the same vertical.

• This approach provides data-driven insights into how metrics stack up against competitors, enabling better strategic planning and adaptation.

Retention Metrics Across Industries

[1] For SaaS Startups

• Monthly Active Users (MAU) and Daily Active Users (DAU): Product usage and stickiness indicators.

• Churn Rate: This measures the percentage of users leaving the service. SaaS startups aim for 5-7% monthly churn, while mature SaaS companies aim for 2-3%.

• LTV-to-CAC Ratio: A ratio of 3:1 is generally healthy, meaning for every $1 spent on customer acquisition, $3 in value is generated over the customer’s lifetime.

• Industry Example: Slack achieved “negative churn,” where revenue from existing customers (via upsells) exceeds the revenue lost from churn, setting a benchmark for sustainable growth.

[2] For E-Commerce

• Repeat Purchase Rate and LTV: These are crucial metrics for retention. In e-commerce, an average repeat purchase rate of 25-30% and LTV-to-CAC ratio of 3:1 indicate strong performance.

• Customer Acquisition Cost: CAC below 20% of LTV is ideal in e-commerce, showing that the business is efficiently converting and retaining customers.

• Industry Example: Amazon’s Prime membership exemplifies how loyalty programs that increase LTV and reduce churn can drive repeat purchase rates.

[3] For Early-Stage Startups

• User Engagement and Stickiness Metrics: Startups focus on engagement and product stickiness metrics like DAU/MAU ratio to gauge retention. A DAU/MAU ratio above 30% is generally considered a good indicator of product stickiness.

• Industry Example: Early-stage startups focused on free trials and community-driven growth to increase product stickiness before scaling to paid models.

[4] For Mature Businesses

• Reducing Churn and Increasing Loyalty: Established businesses prioritize churn reduction and loyalty. SaaS companies aim for annual churn rates below 5% for B2B and 10% for B2C.

• Net Promoter Score (NPS): Mature companies use NPS as a key indicator of customer loyalty, aiming for scores above 50 in B2B SaaS and 60 for B2C.

• Industry Example: Adobe’s transition to a subscription-based model exemplifies loyalty improvement through a long-term engagement strategy.

Earlier this year, I began using Varos, a benchmarking platform that delivers real-time insights into key performance metrics for businesses.

By anonymously comparing your company’s data with other companies in the same vertical, Varos provides a data-driven edge to spot growth opportunities and optimize KPIs.

• Key Insights: Varos enables businesses to benchmark against peers and see where they stand across critical retention metrics like churn, CLV, and DAU/MAU ratios.

• Data-Driven Hypothesis Testing: With live benchmarking data, I can build hypotheses around potential growth areas, test strategies, and validate results against industry data. For example, if churn appears high, Varos allows testing retention tactics - such as onboarding improvements or loyalty programs based on industry performance benchmarks.

• Competitive Comparison: Varos anonymously compares performance against competitors, giving a clear picture of how your KPIs stack up in real-time against similar businesses in terms of spending, engagement, and retention.

Retention Strategy Recommendations

[1] Monitor Retention Metrics Regularly

• For SaaS and e-commerce, tracking retention metrics like DAU, MAU, churn, and LTV should be daily, weekly, and monthly.

• Tools like Varos can help automate these processes and offer key insights for competitive benchmarking.

[2] Focus on Stage-Appropriate Metrics

• Tailoring retention strategies to the company’s growth stage and industry is crucial.

• Early-stage startups should focus on engagement and product stickiness metrics like DAU/MAU ratio.

• Mature companies need to prioritize churn reduction and customer loyalty through upsells, cross-sells, and loyalty programs.

[3] Align Strategies with Industry Benchmarks

• Benchmarks must match your startup's growth stage and vertical. Tools like Varos help align your retention and performance metrics with industry standards, allowing real-time adjustments to stay competitive.

• For example, SaaS companies with a 3:1 LTV-to-CAC ratio outperform the competition, making it a valuable growth target metric.

Final Words

• For sustainable growth, businesses must retain customers and maximize LTV over time.

• Regular benchmarking against industry standards ensures that your retention metrics remain competitive.

• With tools like Varos, you can monitor your performance and adjust your strategies to align with industry benchmarks, ensuring continuous growth and improvement.

That's it for today's article! I hope you found this essay insightful.

Wishing you a productive week ahead!

I always appreciate you reading.

Thanks,
Chintankumar Maisuria

Appendix

Sources

1. Varos.com

2. E-Commerce Retention Best Practices: Hubspot